Hermes Fund Management

It would be ludicrous to say that institutional investors have no say in the chain of corporate governance, even at the level of strategy. Institutional investors like mutual funds act in the interest of many smaller investors who are seeking low-risk investment. They have the right to influence strategy and to threaten to take their business elsewhere if they are not satisfied, and they usually hold a substantial interest in companies like Hermes. However, institutional investors are beholden to all of their investors in turn, and those people have a range of expectations both in terms of ethics and their investment goals. It is true that the people that the institutional investors represent in turn authorized them to make decisions with their money, but the general rule should be that institutional investors should avoid trying to change a company’s policies or strategies too much, lest they kill the goose that laid the golden egg. That having been said, institutional investors are an important short-circuit on companies, because institutional investors often have longer-term aspirations and thus will stop short-term profit grabs. However, Hermes’ stance justifies interference in Total’s operations in a few ways. First, note that Total’s decision, no matter what it ultimately decides, would not be illegal. Since it would violate no laws by attempting to exert influence over Total, Hermes simply has to decide if it would be best for its own internal values to interfere in Hermes’ strategic decisions. The people who invested into Hermes were people who, either implicitly by the very act of investing or consciously and explicitly, agreed with its stance. (If they didn’t, they in turn have the right to take their money elsewhere). Hermes is concerned with long-term profitability, ethical business practices and enlightened self-interest. If Total wants to keep Hermes’ investment, they should change their exploitative stance in Burma.